October 10, 2008

Loonie suffers record one-day drop

As oil prices drops below $80/barrel, Canada's oil export driven economy takes a huge hit.

CANADA - The loonie had the biggest one-day drop on record today, falling nearly four cents against the American dollar at one point amid tremendous financial upheaval around the world.

Even after recovering from its lowest point, the loonie was down 3.08 cents to 84.20 cents US early in the afternoon.

Earlier, the dollar was down as much as 3.87 cents at 83.41 cents, according to the Bank of Montreal's currency desk.

Canada's dollar has now fallen more than a quarter since hitting an all-time peak of 110.3 cents US last November after a rapid three-month rise.

It's nearly three years since Canada's dollar was below 84 cents US, on Nov. 21, 2005.

According to the Bank of Canada's exchange rate website, the dollar hasn't fallen more than three cents in one day since June 21, 1961, when it lost 3.38 cents US.

The fall of the loonie reflects the impact of lower commodity prices, especially oil, along with weak economies around the world and concern that even Canada's sturdy banks are being effected by a global credit crunch.

An economic note from Scotiabank said the loonie is "showing no signs of ending its losing streak against the U.S. dollar."

The loonie is also being sideswiped by rising demand for the U.S. dollar as the United States government tries to borrow heavily in global money markets to finance its $700-billion bailout of banks.

The loonie's plunge yesterday and today came despite a report from Statistics Canada that the country generated a record number of new jobs last month and more support for the financial system from Ottawa.

Finance Minister Jim Flaherty says the government won't allow Canada to be dragged down by instability from outside the country and promises to buy as much as $25 billion worth of debts from Canadian financial institutions.

If the loonie stays at current levels it will make imports of everything from Florida fruit to Boeing jetliners more expensive to Canadians and raise the costs of winter vacations in the United States.

It will also provide some relief to hard-pressed Canadian manufacturers, squeezed for the last two years as the strong currency made Canadian lumber, newsprint, machinery, furniture and other products more costly in the United States market.

However, the volatile trading in the currency makes it difficult for companies and consumers to adapt to such rapid changes.

Past Headlines regarding the Canadian Loonie:

Canadian Loonie on a Roll - Uphill!

Loonie Expected to Soar in 2008

Par in sight for Canadian Dollar

Canadian Dollar Soars Above Par

The Canadian Dollar and Exports

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